This is the fundamental real estate question, and it is one that weighs heavily on many retirees.

My mother, who is a real estate agent, has often mentioned to me that if you live in a city your whole life, the only significant real estate purchase and sale decisions are the timing of your first home purchase, and the sale of your last house. The logic behind that statement is that if you sell your first home in a down market, you are also buying your second home for cheap, so to some degree, your losses balance off against your gains.

This brings the focus straight to homeowners in their 60s and beyond. In many cases, you have owned your home for decades, and seen it increase in value to the point where it represents a sizable part of your net worth. Your personal retirement lifestyle is in many cases influenced by the value of your house today.

So what happens if you think house prices might drop 20 per cent in the next couple of years. What do you do now?

A review of house prices in Toronto for the past 30 years shows that if you sold or downsized your family house in 1989, you did very well – getting an average price of almost $300,000. If you waited to sell until 1993, you would have received less than $225,000, a decline of 25 per cent. In fact, you would have had to wait 13 years until 2002 before getting that $300,000 price again.

In Western Canada, the growth and decline of prices has been much more significant than Toronto – making the timing of a final sale even more important.

According to RBC economist Robert Hogue in a report from September of this year, “In Vancouver, Canada’s most expensive market, RBC housing affordability measures are very close to their all-time high, which points to significant underlying stress and raises a red flag.” Mr. Hogue adds: “Very poor affordability is likely to restrain demand in the period ahead.”

In late 2010, do you move quickly to sell your house to get out at a 1989-like peak, or do you ignore the long-term housing trends and simply sell when you are ready to do it?

The key question to answer for yourself is whether you will need to live off of your real estate equity at some point in retirement. If you have enough other net worth to cover your needs and never need to touch the equity in your home, then I wouldn’t worry about trying to time the sale of your long-term family home. While it can still be of great value to time it right, that can be a difficult task. You may want to work with a certified financial planner to help answer the question.

If you know that you are not in that fortunate position, then the timing of the sale of your house will be very important.

No one can predict what will happen to real estate prices, but in Toronto, average prices have now risen for 14 straight years. This consistent growth is not typical, and it is a streak that could end with a thud.

So if you are counting on your home equity to help fund your retirement, I think you have two options:

1. Seriously consider putting your house on the market within the next year if you plan to take the proceeds and either downsize considerably, rent, or move to an area with lower real estate costs. This brings certainty (within a few percentage points) of the financial value of your home – and what you can count on for retirement planning and expenses.

2. If you don’t want to sell your home, and don’t want to feel forced to sell your house at the wrong time, then you will want to ensure that you have a sizable home equity line of credit available to you should you need it. This will allow you to draw money out of the equity in your home if needed and to wait until you are ready to sell.

As with all financial questions and decisions, there is some value in certainty and guarantees. With your real estate, the only reasonable certainty is the value of your house today. You just don’t know what it will be worth in the future.

by Ted Rechtshaffen in the Globe and Mail

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